Foreign banks here aggressive in local retail financing market

Foreign banks in Korea have begun a campaign to carve out a bigger piece of the local retail financing market. They drastically increased the number of branches here and launched an all-out attack in strategic high-return sectors. Citibank announced Tuesday that it would open three new branches in the first half of this year. By establishing branches in Taegu, Kwangju, and Taejon, centers of provincial economies, Citibank hopes to expand its business interests across the entire nation, having thus far focused only on metropolitan Seoul.

The fields in which they are placing heavy emphasis are the housing collateral loan and large-scale deposit markets. Both Hongkong and Shanghai Banking Corp. (HSBC) and Citibank lowered interest rates on housing collateral loans Monday by 0.6% point, bring down their annual rates from 8.5% to 7.9%.

HSBC also decided to apply the lower interest rate to existing loans, which amount to some 700 billion won. The policy reflects the bank’s determination to take a more active role in the domestic housing financial market, whose volume is estimated at 55 trillion won.

The HSBC offensive comes at a time when the interest rates of housing collateral loans extended by most domestic banks and life insurance companies stands at 8-10%. These banks are all but obliged to apply the previous high interest rate to their existing loans due to huge outstanding collateral loans.

Noting that the housing collateral loan market has emerged as a core part of asset operations due to the steep fall in market interest rates and the volatile stock market, an HSBC official said the bank decided to apply the lower rate to existing loans in a bid to attract housing collateral loans from banks with higher rates.

To cope with the offensive, domestic banks have begun to come out with countermeasures. H&CB slashed its interest rate on housing collateral loans, and Kookmin, KorAm and Shinhan banks, as well as the National Agricultural Cooperative Federation, tentatively decided to exempt customers from paying the cost of setting up a collateral security.

Seoul Bank, a newcomer to the housing collateral loan market, is now engaged in a heated competition with other banks. Combined deposits at the top five foreign banks in Korea, including Citibank and HSBC, doubled from 2.7 trillion won at the end of 1999 to 5.4 trillion won at the end of last year.

Hong Chan-Sun hcs@donga.com